Taxation of Life Insurance Proceeds
Author: Klaralee R. Charlton
| CPE Credit: |
2 hours for CPAs
2 hours Federal Tax Related for EAs and OTRPs
2 hours Federal Tax Law for CTEC |
Per the IRS Education Provider Standards this course must be COMPLETED by 12/31/2026 to receive credits. NOTE: Go to My Professional Profile in your CCH CPELink account settings to ensure your name, and PTIN number; matches your PTIN card
Life insurance proceeds are traditionally thought of as exempt from tax. However, most taxpayers and some practitioners are surprised to learn life insurance is taxable for estate tax and may also be taxable for income tax. Certain lifetime transfers of policies can transform an income tax-exempt asset into a taxable one—sometimes unintentionally. In this course we will review the income and estate tax rules relating to life insurance proceeds and analyze the transactions that transform tax-exempt proceeds into taxable ones. The course will describe the best transfer methods for taxpayers desiring to transfer policies while maintaining the tax-exempt status of the policy proceeds and discuss model ownership methods to minimize estate tax.
Publication Date: August 2024
Designed For
Attorneys, CPAs, and Enrolled Agents.
Topics Covered
- Traditional Life Insurance Proceeds: Income Tax Consequences, Estate Tax Consequences
- Using Trusts to Avoid Gift & Estate Tax: Irrevocable Life Insurance Trust, Crummey Trusts
- Transferring a Policy for Value: Tax Consequences for Seller, Tax Consequences for Buyer
- Excpetons to Tranfer-for-Value Rules
- Transfer to the Insured Using Grantor Trusts
Learning Objectives
- Describe the income and estate taxation of life insurance proceeds
- Identify the methods for transferring life insurance policies while retaining the tax-exempt character of the policy proceeds
- Identify opportunities to minimize the taxation of life insurance proceeds
- Recognize and analyze the consequences of transferring life insurance policies to related and unrelated parties
- Identify how to recommend ideal transfer methods for life insurance policies to minimize income taxation
Level
Basic
Instructional Method
Self-Study
NASBA Field of Study
Taxes (2 hours)
Program Prerequisites
None
Advance Preparation
None
